KARACHI: The State Bank of Pakistan (SBP) has so far provided some Rs 1.3 trillion financial relief package to businesses under its Corona Relief measures to support the economy. In an exclusive interview with Aaj News' "Rubaroo" talk show hosted by Shaukat Paracha, Dr Reza Baqir, the Governor SBP, said that pre-coronavirus pandemic Pakistan's economy was on the right track and gradually improving. The country's exports and remittances were growing and the current account deficit was on decline, while stock market and other economic indicators were also performing well, he added.
However, he added, coronavirus has adversely affected Pakistan's economy. Accordingly, in order to address economic challenges that emerged following the outbreak of corona pandemic, the SBP and the federal government promptly took some 'ambitious' measures to support the economy, he added.
Talking about the country's economic outlook, the governor said that firstly coronavirus is a public health crisis and secondly it's an economic crisis as well. Currently, the number of new Covid-19 cases is on the decline, the economy will improve if this trend persists, he remarked.
"We are optimistic that foreign exchange reserves and exchange rate will improve in the coming days. Even if a new challenge or crisis arises, the SBP is fully prepared and ready to deal with any challenge," he added.
He recalled that Pakistan's exports were $2 billion per month in January and February and after the virus outbreak, exports declined to $950 million. However, exports have passed the worst period and recent data shows that exports are again posting growth and touching $1.5 billion per month, according to him.
"It the responsibility of policymakers, particularly the economic policymakers, to give confidence to the people with their decisions and economic statistics that despite one of the biggest economic crisis that is still continuing, we (policymakers) have managed the situation very well and with the result that the crisis is not out of control," the Governor SBP said.
Governor SBP said that policy makers are working to stabilize the situation and confidence will be restored with improvement in the health sector.
Talking about inflation, he said, normally inflation surges because of rising demand, but right now demand has collapsed due to Coronavirus. There is no demand but supply disruption is the main reason for the hike in inflation, he added.
Currently, demand and inflation constitute no big challenge, Dr Baqir said and added that SBP's main focus is on GDP growth, financial stability and jobs to regain pre Covid-19 economic growth.
He said that when foreign exchange reserves of other countries declined during the recent crisis, Pakistan's reserves increased due to support of friendly countries.
"Despite the Corona pandemic, the country's foreign exchange reserves increased by some $ 5 billion during the last fiscal year. The country's foreign exchange reserves surged to $12 billion at the end of FY20 compared to some $7 billion at the end of FY19," he said.
Mainly the country's foreign exchange reserves surged with support of sufficient lending from friendly countries and friendly international agencies. "The amount we paid for the external debt servicing and fresh borrowing is almost equal to what it was during the last fiscal year," he said.
During the last fiscal year, a notable growth in remittances and exports led to a significant improvement in the current account, which indicates the country's external account. The country's current account deficit declined from $17 billion to $3 billion during the last fiscal year.
Export sector's performance had been "very poor" for the past few years, however, before Corona it was gradually improving with the support of measures taken by the government, he said. The massive decline in current account deficit enabled the government arrest the slide in foreign exchange reserves. "The biggest benefit of improving foreign exchange reserves is that it restores investor confidence and ensures economic stability," he added.
He pointed out that prior to coronavirus, Bloomberg had reported that Pakistan's stock market was the world's best market between June 2019 and January 2020. However, the pandemic has seriously affected Pakistan's economy.
Governor SBP said that lower GDP growth is a big challenge and this is not only a challenge for Pakistan but for the entire world as every country is now facing lower GDP growth.
"Now the question is how the policymakers can deal with it. Pakistan will also come out of this (corona) crisis, if not in three or six months, then in a year," he added. He said that SBP has taken a number of measures to support the country's economy in the wake of coronavirus. The biggest impact of the deadly virus was on the budget and cash flows of business while millions of jobs were at stake. Moreover, from foreign buyers had orders also stopped.
Overall income of the business community was also reduced due to closure of restaurants, shopping malls and other businesses, he said and added that businesses have however avoided default with support of SBP's measures.
"The first step was required was to support and maintain the cash flows of businesses. Accordingly, SBP first decided to support the cash flows of businesses and in collaboration with banks it announced a one-year deferment of principal amount of loans," the governor said.
Under this scheme, banks and DFIs have deferred some Rs 590 billion principal amount since the announcement of this scheme. In addition, SBP also launched a loan restructuring scheme and loans worth some Rs 125 billion have been restructured or rescheduled by the banks to facilitate the borrowers, Governor SBP said.
Replying to a question about private sector loan write-off during the corona crisis, Dr Baqir said that Pakistan's most banks are private banks, which have shareholders. "And when we talk about loan write-offs, it means taking money from shareholders and giving it to borrowers. This is a dilemma, how does one justify taking an amount from one private sector and give it to another private sector," he added.
He said SBP has also reduced the key policy rate by 625 basis points from 13.25 percent in March to 7 percent in July, "For the first time in the history of the country, three emergency meetings of the concerned committee were held to reduce interest rates so that people could get relief," he added.
The reduction in policy rate has also provided some Rs 450 billion financial relief to businesses, he stated.
Baqir said that SBP has also introduced a refinance scheme for payment of wages and salaries to workers and employees to prevent lay offs and so far over Rs 100 billion has been approved under this scheme to protect 1.1 million jobs.
"Cumulatively, under SBP's measures, taken after the corona pandemic to support the economy, some 1.3 trillion financial packages have been given to business and entire details are available on SBP's website," Governor SBP said.
Talking about auction of bonds on higher rates, he said SBP's monetary policy committee only sets interest rates, not bond rates.
Replying to a question, he said that the IMF has always asked for an independent monetary policy committee for interest rate decisions. In Pakistan, an independent monetary policy committee is already there that takes decisions on interest rates after detailed deliberations on economic indicators such as inflation and GDP growth.
On the Financial Action Task Force (FATF), he said that Pakistan has already made significant progress on the FATF and the pace of progress has increased. "We hope the remaining points will also be addressed in the near future," he added.
Governor said that SBP also launched a Refinance Facility to combat Covid-19 to provide financing to manufacturers of protective gears and equipment, including items such as masks, protective dresses, testing kits, hospital beds and ventilators.
Copyright Business Recorder, 2020
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